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Burger King Module VIII: AGI Jake Peng

Burger King Module VIII: AGI Jake Peng. An overview of the QSR industry. Fast Food Hamburger Restaurants (FFHR) High competitive High volume, low margin Compete on cost leadership and market penetration. Restaurant industry ($1.75 trillion). Fine dining Quick service restaurant

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Burger King Module VIII: AGI Jake Peng

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  1. Burger King Module VIII: AGIJake Peng

  2. An overview of the QSR industry • Fast Food Hamburger Restaurants (FFHR) • High competitive • High volume, low margin • Compete on cost leadership and market penetration Restaurant industry ($1.75 trillion) Fine dining Quick service restaurant “Fast casual” Others

  3. Brief comparison with peers

  4. Overview of Burger King • World’s 2nd largest FFHR • 13,237 restaurants in 80+ countries • 1.1 billion in revenues, 234million net income in 2013 • Brief history • Started in 1950s; changed hands several times • Acquired from Diageo by a P/E consortium in 2002 and first went public in 2006 • Acquired by 3G Capital in Oct. 2010 and went public again in Jun. 2012

  5. Revenue breakdown (2013)

  6. Estimate Revenue Growth • Revenue ↓and EPAT ↑ • Reason: Refranchising strategy Sales of franchised restaurants no longer counted as revenue • Historical “revenue” growth is irrelevant

  7. Estimate Revenue Growth (Cont’d) • Alternative: System-wide sales growth • Measures sales of all restaurants • Royalty = Sales × x% • ~90% revenues from royalties in 13Q3 • Refranchising is expected to be completed in 2013 • Only 50+ company restaurants used to test new food and image • Revenue growth set at 4% • Historical trend • International expansion

  8. EPM estimate • Historical EPM is irrelevant • Increase due to refranchising, which decreases revenues and increase EPAT • EPM set at 40% • Based upon 13Q3 figure • Reason: first quarter to complete refranchising

  9. EATO estimate • Historical EATO is irrelevant • NEA remains constant from 2011-2013, while revenues decreases • EATO expected to increase at the same rate as revenue

  10. DCF approach

  11. REI approach • NEA does not grow at the same rate (g) as EPAT and revenue • The perpetual portion of PV has to be calculated separately

  12. AGR approach

  13. Sensitivity analysis Analyst range: $16 – $28 SP Feb.21 2014: $26.16 SP has been striking historical records in the past week

  14. Share price TTM 2/21/2014 $26.16 ~50% 2/19/2013 $17.89

  15. Reason for rise in stock price • 100% EPS growth YOY • Successful completion of refranchising strategy (99.6% by 2013) • Avoid capital commitment • Focus on marketing, food innovation, and global expansion • Save one-time legal/appraisal fees • Containment of SG&A (USD 100 million, or 30%)

  16. The End

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